EUR/USD Outlook Mired by Bets for ECB Adjustment
- EUR/USD Outlook Mired by Bets for ECB Adjustment; Disappointment on Tap?
- USDOLLAR Risks Further Losses as Slowing Job/Wage Growth Drags on September Expectations.
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Chart - Created by David Song
- Following the kneejerk reaction to the weaker-than-expected U.S. Non-Farm Payrolls (NFP) report, the near-term pullback in EUR/USD may gather pace in the week ahead amid growing speculation for the European Central Bank (ECB) to further adjust its non-standard measures and extend the duration of its quantitative-easing (QE) program.
- Failure to retain the bullish patterns from the end of July casts a near-term bearish outlook for EUR/USD, but the single-currency may face a similar reaction to the ECB’s March 10 interest-rate decision, where the exchange rate snapped back from a low of 1.0821 to end the day at 1.1176, should the Governing Council fail to meet market expectations.
- Failure to hold/close above 1.1220 (61.8% retracement) may generate range-bound conditions going into the first full-week of September, with initial support coming in around 1.1110 (50% retracement), which sits just below the 200-Day SMA (1.1120).
- The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd remains net-short EUR/USD since July 27, with the ratio hitting a 2016-extreme back in May as it slipped to -2.67.
- The ratio currently sits at -1.25 as 45% of traders are long, while short positions are 19.8% lower from the previous, with open interest flat against the monthly average.
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|Index||Last||High||Low||Daily Change (%)||Daily Range (% of ATR)|
|US Dollar Index||11973.80||11991.02||11921.08||0.07||129.40%|
Chart - Created by David Song
- Despite the sharp rebound ahead of the holiday weekend, the USDOLLAR continues to carve a series of lower highs & lows, with the greenback at risk at facing near-term headwinds as the 151K expansion in U.S. Non-Farm Payrolls (NFP) accompanied by the larger-than-expected slowdown in household earnings dampens bets for a September Fed rate-hike.
- The September 21 interest-rate decision may reveal a growing dissent within the Federal Open Market Committee (FOMC) as 2016 voting-member Loretta Mester argues that there’s a ‘pretty compelling’ case for higher borrowing-costs, but the central bank may continue to reiterate ‘most survey-based measures of longer-run inflation expectations were little changed, on balance, while market-based measures of inflation compensation remained low’ as Chair Janet Yellen appears to be in no rush to further normalize monetary policy.
- Need a closing price below 12,049 (78.6% retracement) to 12,064 (61.8% retracement) to favor a further decline in the USDOLLAR, with the next downside hurdle coming in around 11,898 (50% retracement) to 11,914 (38.2% retracement).
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--- Written by David Song, Currency Analyst
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